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World Bank warns of global recession

Monetary tightening aimed at reducing inflation risks worsening the current economic slowdown, the bank’s new study finds

The World Bank study comes as central banks have been lifting interest rates to reduce inflation.

Tweet on World bank take on recession 

Central banks’ efforts to tame inflation could tip the world economy into recession next year!

According to a new World Bank study that encouraged policy makers in major economies to keep in mind the spillover effects of monetary tightening.

Central banks around the world have been rapidly raising interest rates this year in an effort to reduce the highest inflation in decades. In the U.S., the Federal Reserve is on track to lift interest rates by at least 0.75 percentage point at its meeting next week, while central banks in England, Canada and the European Union have all also raised rates recently.

If expected rate increases fail to lower inflation to central banks’ targets, monetary policy officials may raise rates higher than expected, which could cause a recession, the World Bank authors wrote.

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” said World Bank Group President David Malpass. “My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies.”

The World Bank study authors encouraged central banks to clearly communicate their policy moves, which it says could help anchor inflation expectations and reduce the amount of tightening necessary, and to consider the global consequences.

Other policy makers should work on ways to ease the supply constraints that are driving rising prices, which cannot be addressed by central bank moves that target demand, the authors said.


Source: World Bank/WSJ